What do you all think–why the historically high and growing margins, and where are they headed in the future?
Mine is decidedly a minority opinion in the universe of finance/econ analysis, but I believe in general that folks in those silos become wedded to historical statistical models without necessarily appreciating the impacts of larger, exogenous trends, especially in politics.
(As an aside, this myopia is reflected in some China analysis today, where otherwise intelligent people apply the laws, such as they are, of economics and finance and seem surprised when a totalitarian dictatorship upsets these calculations by fiat.)
Exploring these trends requires skiing uncomfortably near the trees here. Conclusions that might seem fair and objective in a political science class are likely to be read as partisan and argumentative on an internet message board. So, for whatever it’s worth, I intend the following observations to be as close to objective analysis as I can come.
The 5-4 decision by the U.S. Supreme Court in Citizens United v. FEC 12 years ago – judicially declaring money in politics to have the protection of speech under the First Amendment and practically allowing big money to flood the political system – capped a realignment of economic interests that perhaps began when President Reagan broke the air traffic controllers’ strike in 1981. This period resulted in enormous gains for capital and enormous losses for labor.
It is no longer controversial to observe that corporate lobbyists, who vastly outnumber legislators, write many U.S. laws, most notably an impenetrable federal tax code that has allowed, for much of that time, headline corporate tax rates and effective corporate tax rates to enjoy the marginal connection of distant relatives. Nor is it particularly controversial to observe that, in the main, politicians’ chief incentive is to remain in office, and catering to corporate deep pockets is a most effective way to achieve it.
These trends have had a variety of effects. They have allowed U.S. corporations to become the biggest and best in the world. The loss of labor’s leverage, generally blamed on globalization, dropped straight to the bottom lines of companies that traded collectively-bargained wages in the U.S. for Mexican or Chinese or Vietnamese wages. Automation, technology, accelerated this redistribution of wealth from labor to capital.
One could also argue that these trends contributed to the hollowing of the middle class and the resulting political trends of populism and alienation we see today. These effects may not seem material to the question you pose, but they suggest a destabilization of the economic platform that provides these generous profit margins.
Viewed through a poly sci lens, I would hazard a guess that the pendulum has swung about as far toward corporate interests as it can without causing a political upheaval that would jeopardize the entire system. Political destabilization is already evident. Nostalgic U.S. historians yearn for a response similar to the one Teddy Roosevelt brought to the Gilded Age, but there is little evidence today of TR’s famous sense of noblesse oblige.
Over the short course of U.S. history, political trends such as this have tended to be cyclical, but the cycles have been very long, multi-generational, and the data set is too limited to suggest what comes next, especially considering all the new variables introduced by the digital age. For those of us nearer the end than the beginning of our timelines, it seems to me imprudent to expect profit margins to revert to levels that reflected very different political and socioeconomic realities.